Hi there, this is Jonathan Ginsberg. I would
like to talk to you today about income tax refunds and Chapter 7. As
you probably know, a tax refund simply means you’ve overpaid the IRS or state
of Georgia and that money is coming back to you. This is money you’ve overpaid.
It’s kind of like a savings account in some ways. So, when you
get it back, it’s like taking money out of a bank account. When you file Chapter 7, that income tax refund
would be considered an asset because it’s like money in savings. So, when I
file Chapter 7 and it’s before tax returns have been filed, I would list
the expected refund as an asset and hopefully exempt it, use the wild card
exemption which allows us to protect up to $5,000 for an individual and up to $10,000
for a couple and exempt the refund. Now, if I don’t have any exemption available
– in other words if we used up all our exemptions – then what I might tell
my client to get the refund, go ahead and spend it on
things that are legitimate. Home repairs. Buying food. Mortgage payments.
Things like that and then wait and file after the refund’s been used
up so we don’t have to deal with it, but what we don’t want to deal with is
a situation when we have a big refund coming. If there are no exemptions
available and the refund comes in and the trustee says, “Thank you very much.
I’ll take that” to distribute it to unsecured creditors. You don’t get the benefit out of
it. So, it’s fairly easy to plan for this, legitimately plan for this so
you get the benefit out of your refund and, of course, what you probably
want to do is adjust your withholding so you don’t have a big refund
because again, it doesn’t really do a whole lot of good in bankruptcy or
really in life because you don’t get it. You’d be much better off putting
that money into an investment account or something where you get some
interest out of it. You have control over it. Giving it to the IRS, hoping they’ll give
it back to you is probably not a great plan in any case, so I would tell you
to look at your withholdings and perhaps to consider setting things up
so you don’t really have a tax refund. Again, I don’t think it does you a
whole heck of a lot of good. I’m not a tax lawyer. I’m not giving you tax advice
but just something to think about. But certainly for bankruptcy purposes,
I think you’re better off not having a refund because again there’s a chance
you could lose it in your Chapter 7. Hope this has been helpful. Again,
Jonathan Ginsberg here. Any questions, contact my office. We’ll be happy
to help.